Upset SBA borrowers take their beef to Capitol Hill

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Members of the House Small Business Committee heard real stories from businesses hurt by the recent partial government shutdown.

A pair of Small Business Administration borrowers and the leader of a small-business incubator testified at a hearing last week about the many ways they were pinched by the record-setting shutdown, which last 35 days.

Heidi Gerding, CEO of HeiTech Services, a government contractor in Landover, Md., told the panel that she had to tap her company’s credit lines to pay staff.

The founder of an Alexandria, Va., craft brewery testified that he and his lender were still waiting on the SBA to lock in an interest rate on $2 million in financing.

Port City Brewing, founded eight years ago, was ready to close on an SBA 504 loan in December, Bill Butcher told the legislators. Now, Butcher is worried he might have to pay thousands of dollars in added interest if the rate ultimately set is higher than it would have been two months ago.

Butcher’s bank lender, the $1.4 billion-asset John Marshall Bancorp in Reston, Va., did not respond to a request for comment.

The shutdown rocked Port City on two fronts. Along with financing issues, delayed approvals by a separate agency tasked with reviewing and approving beer labels threatened to derail the introduction of a new beer the brewery planned to introduce this spring, Butcher said.

“Until we get that label approved, we can’t sell that beer, which means we aren’t brewing that beer and the entire supply chain is on hold,” Butcher said. “If you’re going to empower agencies to give approvals for basic functions, you need to keep them at work.”

Butcher’s comments provide a window into the struggle the SBA and its approved lenders face as they grapple with what experts have described as a mountainous backlog of applications and servicing requests that accumulated during the shutdown.

It highlights the importance of discussions to prevent the next possible shutdown, which could start Friday. Meanwhile, some lenders have been encouraging lawmakers to find a way to keep the SBA open even if another shutdown closes other government agencies.

The last shutdown, according to several accounts, delayed up to 300 SBA loans every day the agency was closed. The SBA said that nearly 1,900 employees were idled, and its two biggest lending programs, 7(a) and 504, shut down completely.

Associate Administrator William Manger, who heads the SBA’s Office of Capital Access, is expected to testify later this month, when the House Small Business Committee plans to hld a hearing focusing on the shutdown’s effect on 504 and 7(a) lending. Originally set for Tuesday, the hearing was postponed to allow lawmakers to attend the late Rep. John Dingell's funeral in Detroit.

Lawmakers began focusing on the potential of an application backlog even before the government reopened on Jan. 25. On Jan. 23, members of the Senate Small Business Committee sent a letter to SBA Administrator Linda McMahon urging her to have a plan in place. Sen. Mark Warner, D-Va., wrote to McMahon on Jan. 31, asking how the agency is addressing the situation.

A spokesperson for Warner said Wednesday that McMahon has yet to respond. The SBA had also not responded to a request for comment.

McMahon did reply to a Jan. 25 letter from Rep. Nydia Velazquez, D-N.Y., that included a similar query. McMahon expressed confidence in her agency’s “ability to assess and work through the volume of applications that may be pending upon resumption of full agency operations.”

The SBA on Wednesday released a weekly lending report indicating that, as of Feb. 2, its two biggest programs, 7(a) and 504, had approved a total of about $8.8 billion in loans in fiscal year 2019. The totals represent a $2.7 billion increase over the total contained in the last weekly report issued prior to the shutdown.

At the same time, the total is 16% lower than the volume reported over the same period in fiscal 2018. (Fiscal years begin on Oct. 1.)

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